Top UK hedge fund boss picks return of bull market

Barclays Bank is the biggest holding of top UK hedge fund Odey Asset Management. Photo / AP

The modest recovery staged by world stock markets in recent weeks may mark the beginning of a new bull market for equities, one of the UK's best-known hedge fund managers said yesterday.

Crispin Odey, the founder of Odey Asset Management, said that he had already bought heavily into banking stocks because he believed they were good value, but now also expected that there would be a recovery across a range of stock market sectors.

"In a little over a month, much has changed n stock markets have shot up, led by the financials and the base material sectors," Odey wrote in the latest edition of the monthly bulletin sent to clients of his hedge fund firm. "Opinion is divided over whether this is a bear market rally or the beginning of a new bull market n I think it has the chance to be a new bull market."

Odey added: "As the story moves from the balance sheet to the earnings potential for the likes of Barclays, the bull market will also extend from its narrow base to encompass other industries where capacity has been sufficiently reduced to come through."

The hedge fund manager's comments will prompt a new debate about stock market valuations, because Odey's investment strategy is widely followed. His European hedge fund was one of the industry's top performers last year, netting investors a return of almost 11 per cent, compared to a 19 per cent loss for the average fund.

Much of that return was generated by bets that Odey made against banking stocks, which fell very sharply throughout 2008. However, he has subsequently switched from selling banks short to backing the sector.

Indeed, more than 20 per cent of Odey's fund is now invested in banks and other financial companies. Barclays Bank is the fund's largest holding.

The recent performance of Odey's hedge fund appears to reflect his views that global stock markets are moving into a recovery phase. Last month, the fund returned a little over 5 per cent overall n that reflected a 7.3 per cent gain on long positions and a 1.6 per cent loss on short trades.

Odey said that, while he was now betting on a sustained recovery, he expected stock markets to continue to be volatile. And he warned there was a danger people would miss out on the gains. "It does look like a bull market that many investors may fail to enjoy."

The UK stock market is up by around 14 per cent since touching six-year lows at the end of March amid hopes that the banking sector is at last putting the credit crisis behind it and that interventionist economic policies such as quantitative easing could pave the way for a recovery from recession.

Odey joins analysts such as Goldman Sachs in predicting a period of gains for equities, though others, such as the very bearish Morgan Stanley, remain highly pessimistic.

If the bears prove correct, Odey may yet join the list of prominent fund managers to have wrongly called the bottom of the current market downturn. Anthony Bolton, the UK's best-known investment guru, was caught out last October when he said markets were poised for recovery, while Warren Buffett, the renowned US investor, prematurely predicted stock market gains at about the same time.

- INDEPENDENT